Increasingly, lenders, finance companies,
credit card companies, and other business entities
that deal with individuals in ordinary consumer
transactions are inserting mandatory arbitration
clauses in their contracts and application forms.
These arbitration clauses threaten to deprive
consumers of legal options that have previously
been used to prevent unfair and abusive business
practices.
Arbitration clauses are often buried
in the fine print of paperwork provided to consumers.
Many consumers do not realize that they have signed
an arbitration agreement when they enter into
a simple transaction with a company, such as filling
out a credit card application. Many more consumers
do not realize what it would mean to their ability
to enforce their rights if they are forced into
arbitration.
Arbitration is an example of what
is known as alternative dispute resolution. Arbitration
is different from litigation in the court system
in many respects. The most notable distinction
is arbitrated disputes are not decided by juries.
In most civil lawsuits, a jury of one’s
peers will determine the outcome if the case proceeds
to trial. With arbitration, there are no juries,
only an arbitrator or arbitration panel to determine
the outcome.
Another difference concerns the
opportunity to participate in discovery to learn
about the other side’s contentions and evidence.
In an ordinary lawsuit, the attorneys will use
discovery procedures to find out what parties
and witnesses may testify to at trial and to learn
about the basis of a party’s claims or defenses.
With arbitration, there is often little or no
chance to conduct factfinding discovery. In many
instances, there is no discovery and not even
a hearing. The arbitrator may decide the dispute
based upon written submissions of the attorneys
without even hearing any witness testimony.
Additionally, with arbitration,
the parties must pay the arbitrators’ fees,
administrative fees of the arbitration association,
and the fees of their lawyers. Arbitrators’
fees can be more than $200 per hour. Since arbitration
clauses often deny consumers the right to join
class actions, consumers with small claims lose
their only realistic chance of pursuing those
claims.
Business entities should not be
permitted to include mandatory arbitration clauses
in ordinary consumer transactions. Since most
consumers’ claims are often for less money
than it would cost to pursue those claims in arbitration,
many consumers are forced simply to write off
those losses.
Those losses, while relatively small
for each consumer, can add up to huge additional,
but unearned and unjustified, profits for the
business entities committing unfair practices.
The high costs of arbitration, the limitations
on discovery, and the prohibition of class actions
make mandatory arbitration clauses in ordinary
consumer transactions unfair.
Arbitration was
not meant to replace the court system and the
right of parties to have disputes decided by a
judge or a jury. Arbitration was not intended
for disputes arising from ordinary consumer transactions
involving parties with unequal bargaining power.
When Congress passed the Federal Arbitration Act
in 1925, it was intended that arbitrations would
take place between companies with relatively equal
bargaining power and financial resources.
Nowadays,
companies are including arbitration clauses in
ordinary contracts, loan documents, and application
forms their customers sign. The arbitration clauses
that many companies are including in the paperwork
often work to deny those customers the right to
challenge the companies’ business practices. |
